Starting and running a business is no easy feat. In today’s ever-changing economy, your prospects might seem more uncertain than ever, especially when it comes to finances. However, with the right tips and tricks, financial management can be the easiest thing in the world.
Below, we will give you a run-down of the essential aspects of small business finance. Read on, and ensure your business thrives from the very beginning.
A Beginner’s Guide to Business Finance
For your business to be successful, you need money — that is plain and simple. You need it to offer services or make a product, pay your staff, advertise your business, etc. Everything that has to do with the acquisition, conservation, and spending of money in a business can be referred to as business finance.
If you are just starting out, all of the requirements above will probably be overwhelming for your budget. That is why one of the main aspects of business finance is business funding, primarily through business loans. These loans can help you get started and figure things out until you start making your own profit.
What Are the 3 Major Functions of Business Finance?
The finance function is responsible for acquiring and distributing funds your business needs to perform certain operations. This function is also in charge of managing expenses, budgeting, and overseeing the cash flow in general.
This function basically ensures that your business has customers. It involves paying for ads, reaching people in different ways, managing social media accounts, and building a recognizable brand.
The operations function is the one responsible for creating goods and providing services. Operations are what ensures your company makes products within the budget limits taking into consideration the needs of customers.
This function of business finance is tightly connected to the other two. In fact, for a business to run successfully, all three parts must be in sync at all times.
What Are the Types of Business Finance?
Now that you know the fundamentals of business finance, it is time to turn to its basic types.
This type of business finance is probably the one you are most familiar with. It refers to any kind of business loan you get and have to pay back after a particular time. In getting a loan, you do not give the investor a part of the ownership but rather agree to return the money later on with interest.
These loans can be short-term (you give the money back within a month or a year) or long-term (you pay off the debt in the span of several years). The former type is suitable for some more minor needs, while the latter can help you start a business, buy equipment, or some fixed assets.
To be eligible for debt financing, you need to pass a credit check. A bank will probably check your credit score and see whether you have the necessary assets to return the debt with no issues.
Equity financing is another type of business finance. It involves giving a part of the ownership of your business to an investor. While this is definitely a con, it also implies that you do not have to pay the money back. When your business starts making money, the investors will get their share and make their money back.
However, giving someone ownership also means giving them a right to make certain decisions and have influence in your business. If that is something you’re not ready to do, then debt financing might be a better choice.
Equity financing can come from different sources. A single investor can give you a large sum of money, or many investors can offer you smaller sums. Each option has its good and bad sides, and yours is to decide what works for you.
If you are starting your small business, you will need all the help you can get when it comes to business financing. We hope that our guide helps you start that journey and advise you to look beyond and get even more info. That way, you will ensure your business starts thriving as soon as possible and that you always stay on top of your finances.